China’s central bank raises banks' reserve requirement ratio by 50 basis points

China's central bank —— The People’s Bank of China (PBOC) announced to raise the deposit reserve requirement ratio (RRR) for Chinese financial institutions by 0.5 percentage points from Nov. 29, the fifth such hike this year and the second increase this month.

Most analysts believed such measure corresponded to the forecasts. The move aimed at enhancing liquidity management and moderately regulating credit supply to tame the inflation.

Analysts said the move would raised RRR for large financial institutions to 18 percent and RRR for the four big state-owned banks -- the Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China -- will stand at 18.5 percent once the rise takes effect. The increase was estimated to freeze liquidity of about 300 billion Yuan (44.8 billion U.S. dollars).

The successive tightening fiscal policy manifested China is under higher inflation pressure. Meanwhile, in consideration of the appreciation of the RMB, higher interest rates would lead to the influx of large amount of hot money. Therefore, the PBOC decided to raise the RRR, instead of interest rates. However, the probability of raising the interest rate would not be ruled out.